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Spotify podcast earnings: Moving beyond the investment phase

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Photo: micheile henderson

Photo of Annie Langston
by Annie Langston

Spotify’s Q1 2023 earnings revealed its growing userbase — now at 515 million monthly active users (MAUs) — and some key insights into its podcast vertical. First quarter revenue fell short of expectations, although podcast ad revenue, mostly driven by originals and exclusives, grew 20% year-over-year (YoY). While Spotify’s operating costs have decreased from $231 million last quarter to $156 million, its gross margin is flat at 25.2% YoY, which Spotify attributes to other higher costs, such as “streaming delivery costs, payment fees, customer service and other content costs”. 

Perhaps most significant was CEO Daniel Ek’s promise that the company’s era of “overspending” on podcasts is over, despite its recent agreements with Gen Z star Emma Chamberlain and its various exclusive video podcast deals. After investing $1 billion on podcasting, Spotify is now focused on reaching profitability and must find new ways to build audiences and monetise its audio verticals to offset those costs.

Advertising needs an audience 

Spotify built its foundations in audio advertising through a range of acquisitions. Spotify’s Audience Network, where publishers can purchase ads, recently partnered with two major networks: NPR and Immediate Media. Much like SiriusXM’s advertising deal with Crooked Media, this deal brings a new slate of podcasts for Spotify to monetise and can help expand these networks' audiences.  

While podcasting is steadily growing, as 37% of consumers in key English markets listen to podcasts monthly (Q1 2023 MIDiA Research), the format has not reached mainstream penetration. So, while Spotify has invested in the content, and has become the second most used podcast platform behind YouTube, the next move is growing its audience. This includes both on-platform and off-platform, as Spotify recently began to open up formerly-exclusive original podcasts to the wider ecosystem. At its Stream On event, Spotify also announced a new partnership with Patreon, allowing Patreon subscribers to listen to subscriber-only podcasts within Spotify (rather than on the Patreon platform). However, offering subscriptions is not practical for every podcaster, as they first need a dedicated fanbase, and many independent creators struggle with initial audience building. So, while subscriptions are in place, the audiences may not be.

Moreover, in this economic downturn, advertising budgets are at risk. Platforms and creators must experiment in alternate podcast monetisation strategies, such as live events and merchandise.

What about audiobooks? 

Spotify pitched audiobooks as its third major vertical alongside music and podcasts. However, the earnings report only mentioned audiobooks in regards to Spotify’s new home screen, which will feature more video content for all of its content verticals. Spotify’s major roadblock in its à la carte audiobook service is Apple’s commission charge for in-app purchases, and it is yet unclear how Spotify plans to overcome it. Moreover, their audiobook chief, Nir Zicherman, recently left the platform. Zicherman suggested potential experimentation with a free ad-supported model (similar to podcasts) or an all-you-can-listen subscription. 

Daniel Ek hinted that a subscription price raise might be coming. Spotify could experiment with a variety of pricing tiers, mixing up access to its variety of content: perhaps an “all audio” subscription includes ad-free music, podcast, and audiobook listening for a premium, while an “audio lite” subscription includes ad-free music alongside ad-supported podcasts and audiobooks. Spotify’s strength continues to also be its weakness: the company aims to be a one-stop-shop for all audio content, but balancing all of these verticals (and their monetisation strategies) is its biggest challenge.

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